Leading state-owned enterprises (SOEs) have been much in the news, mostly for deplorable finances and dubious procurement decisions. Less discussed has been how they responded to the commodity boom by seeking to capture a share of mining rents rather than investing to diversify the country’s economy and promote new opportunities.
From that standpoint, their malaise reflects a broader challenge for SA, which is to find a new path to growth after the historic run-up in metals and coal prices that ended in 2012.
Consider Transnet. It has long built dedicated lines for Kumba to export iron ore from the Northern Cape and to transport coal exports from Mpumalanga. Meanwhile, farmers and manufacturers have seen much higher tariffs and longer delays. Many have ended up relying on road transport, which is more polluting but gets an effective subsidy from the state, which maintains the roads.
Transnet doesn’t advertise its rail tariffs, but the Ports Regulator of SA publishes port fees. In 2017, bulk coal was charged under R4 a tonne for exports and iron ore about R9. In contrast, general containers paid R120, clothing and textiles R51, agriculture R33 and steel and ferroalloys, about R30.
Transnet’s decisions had a sharp effect on cost structures across the economy. According to Statistics SA’s GDP use tables, freight costs equalled just 3.7% of the total value added in nongold mining, although it moved millions of tonnes of ore and coal to the coast for export.
In contrast, freight equalled 22% of value added for agricultural and basic steel, about 12% for furniture and chemicals, and 7% or more for sawmilling, food, footwear and textiles. Transnet’s experience demonstrates the blockages to redirecting the economy away from dependence on the mining value chain.
Its financial model has long depended on capturing a share in mining rents by providing low-cost services for bulk mining transport. But that approach means activities in agriculture and manufacturing pay higher tariffs and receive less service.
Of the eight rail projects defined as under way or anticipated in the 2017 budget, six were primarily designed to service mines. Yet the fall in iron ore and coal prices after 2012 means these facilities may end up underutilised.
Eskom has shown a similar focus on serving the mining value chain rather than promoting diversification. A third of its production goes to energy-intensive users, most of which are mines or refineries. From 2000, Eskom lobbied heavily to build some of the largest coal plants in the world, despite the risks of climate change. At the height of the commodity boom, from 2008 to 2012, it doubled its tariffs in real terms, which in itself discouraged electricity use.
The sharp fall in metals prices combined with declining demand in response to higher electricity prices has left Eskom with an oversupply problem. Its response has been perverse from the standpoint of economic development – it wants to extend subsidies to metals refineries, while refusing to provide transmission facilities to renewable energy plants. The provision of basic infrastructure should be a critical way in which the government promotes inclusive growth. Yet neither the SOEs nor regulators have made much effort to align their decisions to support diversified growth and job creation. Instead, they got swept along on the tide of the commodity boom. SA as a whole may end up paying the price in the form of stranded investments and lost chances.
• Dr Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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